There are three business valuation methods that are generally used when valuing a company. Depending on the particular business, one of the method is utilized to come up with the valuation.
The three business valuation methods are asset based approach, the income based approach and the market based approach. The asset based approach is utilized for companies that are asset heavy. The valuation is based on the value of the assets of that particular company. This approach is further broken down into three sub categories. They are the book value, going concern and the liquidation value.
The income based approach is derived by calculating the projected future cash flow and multiplying it by an appropriate discount rate. This approach is usually used for start-ups and IP heavy companies.
The market based approach is the valuation of the company based on what similar companies sold in the near past. An extensive research must be conducted. And an M&A advisor should also leverage his or her experience to come up with the valuation of the company. The valuation is usually a multiplier of revenue or adjusted EBITDA for lower middle market companies. For a free confidential consultation of what your company’s valuation may be, please contact us at https://gillagency.co